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Paul Smithson - 18th December 2008Deciding how much to pay JV partners can be
a difficult task. If you get it wrong by giving too little you
risk not getting a JV partner on board, but if you give them
too much you risk making a loss on the sale. So where do you
set the level?

The simple answer is that there is no
‘simple answer’.

There are so many factors that come into
play that it makes almost every situation completely
unique.

There’s the issue of the selling price. If
you’re selling a $10 ebook to a very small niche then giving a
5% commission is unlikely to be enough to tempt any potential
JV partners to get involved. At that price, and at that
commission rate, they’d have to sell two thousand ebooks just
to make $1000.

Then there’s the issue of costs and
profitability. If your product sells for $100, but costs $70 to
produce it can be hard to justify giving anything more than 30%
as to do so would mean you’d be losing money on every sales
(see below for a reason why this isn’t always the
case).

And on the flip-side there’s the issue of
who the JV partner is and what they are offering. If the JV
partner is someone who you hardly know and has a very small
list with unknown potential you might want to give a lower rate
than if you were talking to one of the biggest players in the
field who has a highly responsive list of several hundred
thousand potential buyers.

Finally, you need to take into account the
current phase the product is in. The commissions you might be
willing to pay for a brand new product during the launch phase
are likely to be markedly different from those of an evergreen
product that has been selling well for several
years.

Taking all of the above into account, how
much should you be offering to JV
partners?

As a general rule of thumb the more
generous you can be the better. Often it can be well worth your
while, particularly for a new product, to give away as much as
50%, 75% or even 100% to get the boost in sales that a good JV
partner can give you.

Giving away such high pay out rates,
particularly a commission of 100%, might sound crazy, but the
truth is that you will usually get a lot of sales that come
directly from the promotional activities of a JV partner, but
often not all of those sales come from people clicking on that
JV partner’s link. Some people will go directly to the site by
typing the name of your product into Google, others will clear
their cookies and so you won’t know who the JV partner was.
This means that even if all of the sales came as a result of
the promotional efforts of that JV partner you will only be
able to pay out on a percentage of them as a significant number
of them, often up to 40%, will be impossible to trace and
attribute directly to any JV partner for the reasons mentioned
above.

This means that for every 100 sales a JV
partner makes only 60 might be logged against them, which means
that if you are offering 100% commissions you are in reality
only paying out 60%. JV partners know full well that it is
impossible to track every sale as the perfect system doesn’t
exist, but by offering them such a high payout you can
compensate them for the fact that not every sale they make will
get credited to them.

Once your product is well established and
selling in sufficient numbers you can lower the commission rate
to a more reasonable level such as 25% to 50%. JV partners will
still be happy to continue to promote the product on an ongoing
basis if the sales continue to come in, particular if the price
of your product is sufficient to make it
worthwhile.

Choosing the right rate to pay isn’t always
easy, particularly if you have no previous experience dealing
with JVs, but if you follow the above advice and make sure you
don’t tie yourself into any long term agreements that could end
up backfiring on you further down the line you shouldn’t go far
wrong.

About Paul Smithson -
Paul Smithson is the founder of Intellimon and the driving
force behind the best-selling XSitePro web site development
tool. Since graduating in Business Strategy and Direct
Marketing from two of Europe’s leading business schools, Paul
has set up five multi-million dollar companies, one of which is
now owned by the BBC. His areas of expertise include business
strategy, e-commerce, on-line and off-line marketing, software
development, and maximizing the potential of on-line
businesses.

For more information about
this, and many other Internet Marketing-related
topics, visit Paul Smithson's site,
www.xsitepro.com.